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INM January 2010 - Underperformance Appears Linked To Common Factors
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
CANSLIM.net


This month's column is a pep talk for all investors who believe that they can do a better job, and for those who want to get above average returns.  The major averages had a very positive year in 2009, however it been exceptional or rather rare to see anyone outperforming the major averages.  It is best to let the market speak for itself, and I believe that the best way to do our job is to go with the market's flow - which means following the good old M criteria of our preferred investment system. Our ability to generate above average returns depends on us doing a better job!

What do we find when we look into why have we seen very few examples of accounts tallying "above average" gains, and why have even so many professional fund managers (including those making use of this investment system their specialty) also fallen short of the goal of getting above average returns?  In many cases, it seems that institutional investors and individual investors have been overly cautious, staying too heavily weighted in cash, as opposed to investing heavily in stocks - which most likely would have drawn the typical portfolio's performance closer to that of the major averages.

Furthermore, leveraging fully on margin might have likely boosted the performance of a typical portfolio even further during the past year, increasing the chances of getting above average returns.  It was even pointed out in prior INM columns that in the Certification program they teach investors to use margin aggressively during an extremely bullish market.  "It is only risky if you don't follow the rules", they say, referring to the point that losses should always be limited to the 7-8% range on each stock you may buy. But after the horrific slide the market took from October '07 to March '09 it required a whole lot of nerve to get aggressive and go long, especially leveraged times two in stocks!  Most of us didn't, and that helps to explain why we fell short of our "above average" goals.

Knowing some factors that have been part of the problem hopefully gets us closer to where we want to be.  All of us have another chance in 2010 to get those above average gains we are after.  Doing so requires taking risks, but there are consequences to avoiding risk too.  Is that not what we can learn from 2009?  Consider those who may have hit the panic button and unloaded their holdings in equities, reducing risk right at a time when they should have been willing to take on greater market exposure.  It is obviously very easy to speak in these terms with the benefit of hindsight now.  Let's at least use this realization as a frame of reference. That way, we can work toward how we will build better performing portfolios in the coming year.

Bull markets typically have a history of lasting much more than 9 months, so time appears to still be on our side with respect to the present rally.  If now is the time, let's adjust and be more willing to work with the market - following the M criteria.  This does not mean it is right to make careless buys in sub par companies, nor is it right to chase after companies with superior fundamentals which are extended from any sound base.  It only means we should be willing to buy stocks meeting the investment system's guidelines.  It also means being willing to concentrate funds in only a small handful of stocks with solid earnings histories.  It means not holding back when another ideal buy candidate shows up triggering a proper buy signal.  Margin, however, should only be used when you have achieved some cushion of profits, as the Certification materials and expert trainers also pointed out!

Investors often tend to believe that greatness is going to require lots of fancy dancing, moving in and out of many various stocks.  However, the firsthand examples we have seen of greatness usually required just the opposite.  One or two critical decisions may be all that it takes to make a dramatic difference in your portfolio's value.  That is not to over-simplify matters, but to remind you how simple it really is!  The truth of the matter is that investors we have seen land the biggest winners got there by persistence with the investment system along with great patience and exceptional selectivity.

About Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net :
Kenneth J. Gruneisen has successfully completed the CAN SLIM® Certification Program.  Mr. Gruneisen became a Registered Representative in 1987 and his career includes experience offering personalized assistance to investors with more than a decade of experience as a Registered Principal managing a branch office.

The recommendations made by CAN SLIM® certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil & Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil & Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.


Comments contained in the body of this report are technical opinions only and are not necessarily those of Gruneisen Growth Corp. The material herein has been obtained from sources believed to be reliable and accurate, however, its accuracy and completeness cannot be guaranteed. Our firm, employees, and customers may effect transactions, including transactions contrary to any recommendation herein, or have positions in the securities mentioned herein or options with respect thereto. Any recommendation contained in this report may not be suitable for all investors and it is not to be deemed an offer or solicitation on our part with respect to the purchase or sale of any securities.

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    The Pro Bowl in Miami last night was a high-scoring shootout fairly typical of the all-star NFL football game, but it reminded me of how so many fund managers and individual investors are all offense. Most have an "always in" mentality, and they do not seem willing to spend enough time on the sidelines. The lack of a more aggressive offense (i.e. heavier buying outright, or on margin) was discussed

The recommendations made by CAN SLIM® Certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil + Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil + Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.

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